The CEA Analysis of ARRA's Impact

Yesterday, the Council of Economic Advisers released the first of its mandated reports on the impact of the ARRA on economic activity. Based upon a variety of approaches (VAR, multiplier based), it concludes:

"...our multiplier analysis and estimates from a wide range of private and public sector forecasters confirm the estimates from the statistical projection analysis. There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter.

There is also broad agreement that it has likely added between 600,000 and 1.1 million to employment (again, relative to what would have happened without stimulus) as of the third quarter."

The CEA actually conducted a series of analyses. The first is an informal approach, examining the contributions of components of GDP to overall growth over time, in an accounting exercise, and then correlating changes in component trajectories that might have reasonably been expected to impacted by the stimulus bill (e.g., state and local government spending on goods and services). The second is a bivariate (in levels) VAR in GDP and employment, and attributing the difference between out-of-sample forecast values for 2009Q2 and actual to the stimulus package, as well as financial interventions (both positive) and an unprecedented credit crunch (negative). The third is a multiplier analysis, that applies multipliers to various injections into the economy. (There is also a cross-country analysis, which yields suggestive results, but I will not discuss at length.)

The second (VAR or "projection") approach yields Figure 8 from the report.

The difference between the projected and actual is given by the darker color in the bars in 2009Q2 and 2009Q3. For 2009Q2, that difference is 2.3 percentage points, at annualized rates.

In the third approach (the multiplier approach), the CEA estimates a 3.1 percentage points (at annualized rates) increment to growth in 2009Q2, and 3.6 ppts in 2009Q3. How does this compare to other estimates? This is addressed in the document's Table 7.

I think it's interesting to see the remarkable coherence in estimates (aside from the guesstimates of the NABE survey).

Actual Data, and Posner's Assertions of Negligible Impacts

What is particularly of interest is the updated information regarding what funds have been disbursed. There are two ways to report the data -- the first by administrative category, and the second by function category. The relevant information (cumulative, not annualized) is reported in Tables 1 and 2.

From the report:

We divide the total dollars of stimulus expended to date into six categories: individual tax cuts and similar payments; the tax cut associated with the adjustment of the Alternative Minimum Tax (AMT); business tax incentives; state fiscal relief; aid to those most directly hurt by the recession; and direct government investment spending. The first three are tax changes of some kind and were established at passage to be roughly one-third of the total package; the second two represent emergency measures and were again estimated to be roughly one-third of the total; the last encompasses a range of direct spending and covers the remaining one-third of the total. At passage, it was anticipated that the tax changes and emergency measures would occur more quickly and direct government spending would be a larger fraction of later expenditures.

We divide the outlays and tax reduction data into these functional categories as follows. Individual tax cuts include the Making Work Pay tax credit, the child tax credit, and a number of smaller individual tax reductions. We also include direct payments (from Recovery.gov) that were made in lieu of a tax cut to certain groups. These include payments of $250 distributed to individuals who receive Social Security and Supplemental Security Income, Railroad Retirement benefits, or veterans' benefits. The business tax incentives and AMT relief are calculated directly by the IRS as part of their simulation process.

We define state fiscal relief to include just the two main programs in this category: a substantial increase in the Federal government’s matching percentage for Medicaid spending (FMAP), and formula grants to state governments for education through the State Fiscal Stabilization Fund. Aid to those directly impacted by the recession includes the increase and extension of unemployment benefits, increased funds for nutritional assistance, and increases in the Temporary Aid to Needy Families (TANF) program. It also includes the government’s substantial subsidy of continuing health insurance benefits (COBRA), which is technically treated as a tax cut.

Government investment outlays include everything else. The obvious components are spending on infrastructure, health information technology, research on renewable energy, and other forms of direct spending excluding transfers. Also included here are tax credits for particular types of private spending, such as weatherization or research and experimentation, since these credits are functionally similar to the direct government spending.

These points are of particular salience in the context of Mr. Posner's post yesterday, in which he states:

No one seems to know how much of the $40 billion was actually received by taxpayers, as opposed to reducing their future tax payments; and of the amount actually received by them, no one seems to know how much they spent rather than saved.

In response to my assertion that he had accused Dr. Romer of making up statistics:

I never accused her of lying about the figure...

This is actually a "revised and extended" version of the argument posed in Mr. Posner's first posting (August 18) on Romer's speech. Reviewing that statement is illuminating:

Romer argues in her talk that by the end of the second quarter of this year, $100 billion of stimulus money had been spent. That is a suspiciously round number, and it is unclear how it was arrived at; but let us assume it is accurate. She then argues that this small expenditure--about two-thirds of one percent of the Gross Domestic Product--is responsible for the fact that the decline in GDP fell (on an annualized basis) from 6.2 percent in the first quarter of the year to 1 percent in the second quarter (though the latter figure is likely to be readjusted upwards).

This assertion is groundless. No one has the faintest idea what effect the stimulus has had. [emphasis added – mdc]

I'll ignore the fact there's a footnote 4 in the Romer speech that tells one how the number was arrived at; further I'll let readers decide what the reference to the "suspiciously round number" is meant to insinuate and focus on the math mistake. Let me reiterate, the emphasized text constitutes a math mistake. $100 billion, divided by quarterly GDP of $ 3535.8 billion is 2.8 percent.

Now, Posner responds on August 21:

Critics have been particularly unsparing of my having expressed the so-called $100 billlion in stimulus disbursements as a percentage of annual GDP. I think it's a fair criticism--and so it is amusing to note the identical procedure in the second sentence of Romer's speech, where she states that the $787 billion is "roughly 5 percent of GDP." It is roughly 5 percent of this year's GDP. But it is to be spent over at least two years.

A couple of observations First, the $787 billion is to be spent over five years (this was, after all, the chief complaint of stimulus critics), although most is to be spent within 18 months of the passage of ARRA. One can see a graph of projected spending (as estimated by CBO) here. However, on Mr. Posner’s source of amusement, when Dr. Romer indicated the share of GDP, she was placing the total stimulus package in context, and not conjoining that calculation to a statement that the entire $787 billion would have an impact within a given year. That sort of calculation only Mr. Posner has made.

Let's return to Posner's assertion that we don’t know anything about the $40 billion on the tax side. Table 1 provides the less "round number" of $43.5 billion cumulative in tax reductions through end-June. I agree that it's hard to say whether any of those tax reductions were "spent" by the recipient households and firms. That's why the functional breakdown in Table 2 is very helpful. We can then consider what is likely to have been spent, on both the tax and expenditures sides.

First, let's take the conservative approach and assume absolutely none of the individual tax refunds, the AMT relief, and the business investment incentives are spent. Second, we have government investment outlays at $5.9 billion; well, that's G in national income accounting-speak, so GDP has to go up there. Third is aid to directly impacted individuals (unemployment insurance, TANF, food stamps) at $14.4 billion. I suspect that these components have a pretty high marginal propensity to consume. Finally, there is state fiscal relief, which is mostly matching for Medicaid, and for education, at $28.2. Here one could argue that the spending is less than dollar for dollar of transfers -- although with a majority of states emplacing furloughs on state workers, I bet this is pretty high. In addition, the turnaround in state and local spending in 2009Q2 is suggestive that the spend-out of these funds is pretty high.

Let's set MPC to zero for all functional tax components, and set it for unity for government investment and for UI/TANF/food stamps, and 0.5 for state fiscal relief. Write this out in plain mathematical terms:

(29.3 × 0) + (7.6 × 0) + (14.4 × 0) + (5.9 × 1) + (14.4 × 1) + (28.2 × 0.5) = 34.4

Convert to Ch.2005$ by dividing by 1.10: 34.4/1.10 = 31.27

Divide by 2009Q2 GDP in Ch.2005$: 31.27/ 3232 = 0.0097

Annualize the quarterly increment: (1.0097)⁴ = 1.039

Convert to percent: (1.039 – 1) × 100% = 3.9%

Let me reiterate, in these calculations I've assume zero consumer and investment spending out of the tax-related provisions, and yet one obtains a 3.9 ppt increment (annualized q/q) growth in 2009Q2.

Now, in his latest post, Mr. Posner has made a new, bewildering statement:

"A neglected point is brought out in an article by Michael Cooper in the September 5 New York Times. The article points out that federal stimulus spending can be nullified by state cutbacks. For example, a federal grant of stimulus money for mass transit has been nullified by reductions in state expenditures on mass transit. The question then becomes what was the consequence of those reductions? Maybe they enabled a state to rescind a tax increase, in which event state taxpayers would have more money in their pockets."

The nullification point is an odd assertion. The state cutbacks presumably would have occurred in the absence of the transfers from the Federal government, so in the absence of the stimulus package, state and local spending would have been even lower. In other words, Mr. Posner is asserting a state and local government spending reaction function that implies each dollar of spending transferred from the Federal government induces and equal and offsetting spending reduction. I'm open to this possibility, but I'd appreciate seeing some data (i.e., not anecdotes) to that effect, rather than mere conjecture.

In addition, Mr. Posner sets forth an alternative scenario, where tax increases are rescinded as a consequence of transfers to the states. On this count, CEA has investigated this hypothesis. Figure 7 from The Effects of State Fiscal Relief is illuminating:

Figure 7 compares the size of total funds from these programs that had been transferred to each state through July 3 with the state's maximum reported fiscal 2009 budget gap.22 While these transfers were sizeable in magnitude, in 35 states they are smaller than the reported budget gap. This means that states could have used the funds to increase their rainy day funds only if they reduced expenditures or increased taxes in the same fiscal year. Given that states underwent deep expenditure cuts in 2009 (42 states cutting their fiscal year 2009 budgets by $31.6 billion through June 2009), it seems unlikely that this would have occurred.

In conclusion, it appears to me that we have several pieces of information, from a variety of sources, that suggest a positive impact on 2009Q2 q/q growth stemming from the ARRA. In addition, if one were to do a meta-analysis of estimated impacts, it would seem to me likely that the mean impact would be in range estimated by CEA.

Let end on a note of agreement. Mr. Posner wrote yesterday:

My lefty critics don't believe me when I say I support the stimulus.

Since Mr. Posner is referring to me (among others), let me say I understand that Mr. Posner is a Keynesian and supports the stimulus. My disagreement is with his nihilistic proposition that we can't know anything about whether there was an impact of the ARRA in 2009Q2. (Personally, I don't count myself a "lefty", but that's another debate.)

The benchmark S&P 500 index closed up 1% at 989.67. The Dow Jones Industrial Average added 0.9% to 9,217.94 and the Nasdaq Composite index gained 1.3% to 1,955.92.  About four stocks advanced for every one that declined.  Volume was light with only 991 million shares exchanging hands.  With investors back among equities, Treasuries declined, as the 2-year fell 1/32 and its yield rose to 1.028%, and the price of the 10-year eased 12/32 in price and its yield increased to 3.517%. The measure of market volatility, the CBOE Vix, reversed Tuesday's near-15% jump, retreating 6.1% to 26.18.

With no clear sings of a near-future rebound, and a shaky U.S. consumer continuing to hold dollars, investors appear nervous about the next leg of a rally that many feel has gone too far too fast.  This morning’s U.S. stock futures indicate shares are set to fall at the opening.  Technology stocks are expected to remain under pressure following last night’s cautious projections from Hewlett-Packard (NYSE:HPQ).    

On Tuesday, financial, industrial and technology stocks showed strength.  Apple (NASDAQ:AAPL) rose 2.8%.  Among financial issues, Bank of America (NYSE:BAC) added 2.1%, while JPMorgan Chase (NYSE:JPM) rose 2.4%.  Key stocks yesterday fueled stock market gains.  The retail sector got a boost as Target (NYSE:TGT) reported better-than-expected results, helped by cost-cutting measures and lower inventories.  Home Depot (NYSE:HD) also beat expectations due to its lowered costs, and also raised its full-year guidance.

A number of shares also benefited from analyst upgrades, including American Express (NYSE:AXP), which was the leading gainer on the DJIA with its 4.3% advance.  The firm received a KBW upgrade to "outperform", citing "improving trends in credit."  Goldman Sachs (NYSE:GS) raised its rating of HSBC (NYSE:HBC) to "buy," noting its loan loss provisions may decline.  Broadpoint AmTech raised Microsoft (NASDAQ:MSFT) to "buy."

Gains were broad-based with nine of the ten S&P500 industry sectors recording gains.  Leading the gainers were basic materials (+1.8%), financials (+1.7%), industrials and technology shares (+1.5%) and oil and gas (+1.0%).  Only health care, a defensive sector, eased with a modest, 0.1% drop.

Meanwhile, Warren Buffett warned in a New York Times article that "Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects."

Among the corporate results, Deere (NYSE:DE) and BJ Wholesale (NYSE:BJ) have reported their earnings. Limited (NYSE:LTD), Network Appliance (NASDAQ:NTAP), and Petsmart (NASDAQ:PETM) are also scheduled to report.

ETF and index people the world ‘round are smiling today. $13.5 billion is a big number. And this BlackRock deal is big not just for the index/ETF industry, but the financial sector in general.  It underscores just how big basis point-linked passive assets have gotten.

As I said a couple days ago in my IU.eu blog titled BlackRock IS the Buyer (Paul Amery has a nice follow-on blog there as well), this is a powerhouse deal. It’s a deal that minces no words, and says what it means. And what it means is we’ve suddenly got a global behemoth, THE global behemoth of an asset manager, with $2.7 trillion in assets. Good lord.  And frankly, on paper at least, it’s a marriage made in heaven, with BGI in a dominant position where BlackRock is mostly absent: ETFs and institutional indexed asset management.

So, wow.

There are a lot of questions that come to mind.  Here are a few of them, which I’ll leave you to ponder:

• How did this deal go from $4.2 billion to $13.5 billion? The short answer is that it included not just iShares (it now makes that piddly $175 million buyout of the CVC Capital Partners deal seem like an afterthought).  Still, the reported bids for the entire BGI entity were still just $6 billion plus.  We’ll dig around some more (more than double is a BIG difference), but there was either misreporting, or this is apples to oranges. The other deals that were announced were highly leveraged. That is certainly one factor.
• Did this deal just come up from out of the blue? No. Other comments of note are that, according to the New York Times article posted this morning, the merger/takeover has been in certain people’s minds for 6 years.  Also of interest is that much of the funding came from Middle Eastern investors – an interesting angle (you can see why in Paul’s earlier reporting on the transaction).

Here are some other big questions I DON’T have the answers to (thanks to Matt Hougan, whom I’d discussed this with yesterday, as Dagen McDowell was cuing up a Fox Business News interview with BlackRock CEO Larry Fink and had asked for our thoughts):

• Will BlackRock commit to keeping the iShares expense ratios at or below their current levels?
• How will this deal affect the launch (or not) of actively-managed ETFs? iShares was certainly looking at it. Does this deal accelerate that process or put it to a grinding halt?
• Will there be significant layoffs as the two operations combine and find economies of scale?
• How much autonomy will existing iShares and BGI people have in the new organization?
• Will the added scale of a combined BGI and BlackRock allow them to lower the cost of quality management? (presumably the answer is yes, the question is how much of that efficiency will be transferred to investors and how much to the BlackRock bottom line).
• Where does BlackRock consider the future of asset management to be? ... with active funds, a passive core with active satellites, or passive funds applied actively?
• Does BlackRock feel like they are getting a deal ... Finding a gem amid the financial crisis wreckage?
• What is more intriguing to BlackRock - BGI or iShares?
• Given BlackRock's (very) active tilt, how strongly do they believe in passive management? After all, they suddently become the largest index player in the world.  Do they believe in the business or do they just want the share lending revenue?
• How active a role will Barclays (now approximately a 20% stakeholder in the new combined entity) play in shaping what BlackRock does?  Remember, also, that Bank of America (through Merrill Lynch) has a significant stake in the merged group (35%, according to today’s Financial Times).

There is no shortage of interesting questions to look at.

* Apple (NASDAQ:AAPL) was upgraded by Morgan Stanley (NYSE:MS) to "overweight," as its analyst increased 2010 earnings estimate to $7.50 from $5.52, citing better-than-expected earnings from iPhone strength. The price target was raised to $180

* Natural Foods (NASDAQ:UNFI) was downgraded by Goldman Sachs (NYSE:GS) to "sell" from "neutral," on price considerations

* Freddie Mac (NYSE:FRE) plans the first commercial bond deal in almost a year on Tuesday, with a $1 billion commercial mortgage bond sale back by multi-family loans

* Canadian Solar (NASDAQ:CSIQ) reported a first quarter loss of 10 cents per share, topping estimates by 16 cents, as revenues plunged 71.1% year-over-year to $49.5 million

* Hewlett-Packard (NYSE:HPQ) recalled 15,000 laptop batteries distributed in China

* Rio Tinto (NYSE:RTP) announced agreement with Japan's Nippon Steel to cut contract prices for iron ore 33%

* Apple (NASDAQ:AAPL) was upgraded by Morgan Stanley (NYSE:MS) to "overweight," as its analyst increased 2010 earnings estimate to $7.50 from $5.52, citing better-than-expected earnings from iPhone strength. The price target was raised to $180

* Natural Foods (NASDAQ:UNFI) was downgraded by Goldman Sachs (NYSE:GS) to "sell" from "neutral," on price considerations

* Freddie Mac (NYSE:FRE) plans the first commercial bond deal in almost a year on Tuesday, with a $1 billion commercial mortgage bond sale back by multi-family loans

* Canadian Solar (NASDAQ:CSIQ) reported a first quarter loss of 10 cents per share, topping estimates by 16 cents, as revenues plunged 71.1% year-over-year to $49.5 million

* Hewlett-Packard (NYSE:HPQ) recalled 15,000 laptop batteries distributed in China

* Rio Tinto (NYSE:RTP) announced agreement with Japan's Nippon Steel to cut contract prices for iron ore 33%

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Friday's Analyst Blog:

Diminished Capacity

It is not a coincidence that in the first quarter Investment fell to its lowest percentage of GDP on record (since 1947) and did so by a very wide margin. Investment made up just 11.22% in the first quarter; the next closest low point for investment share of the economy came all the way back in 1949 and was at 12.77%. The long-term average is 15.99%.

If you have a factory with 30 of your 100 lathes sitting and collecting dust, are you really going to go out and buy more of them? This is very bad news for firms that sell factory equipment, ranging from Applied Materials (AMAT) to firms like Ingersoll Rand (IR). If mines are not working at capacity, it means that they will have idle equipment, and are not likely to place new orders with Joy Global (JOYG) or Caterpillar (CAT).

Looking a bit more closely, capacity utilization in Manufacturing dipped to 65.7% from 65.8% in March and is down from 77.0% a year ago. Mine utilization tumbled to 82.5% from 85.2% in March and 90.9% a year ago. Utility utilization ticked up to 80.7% from 80.5%; a year ago it was at 85.1%.

Chevron's Ecuador Problem

Burnishing Chevron Corp.'s (CVX) environmental credentials must be a fairly difficult job in and of itself, particularly in the current environment of concerns about global warming and carbon footprints.

But it gets close to impossible when this card-carrying member of the Big Oil club is accused of destroying pristine rainforest and endangering the lives of countless people in Ecuador's Amazonian frontier. This story has been playing over and over in the media, including in today's New York Times.

Chevron has been sued in an Ecuadorean court, with $27 billion in potential damages, with a decision expected by the end of the year at the earliest. But that will hardly be the end of the case. Aside from lobbying efforts in DC, Chevron is expected to go through the appeals process, ultimately to international arbitration, if it comes to that.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

He lays out his case in an op-ed in today's New York Times. 

"The 19th century was dominated by the British Empire, the 20^th century by the United States," he writes. "We may now be entering the Asian century, dominated by a rising China and its currency."

He goes on to suggest that the Chinese renminbi (aka yuan) could become the new reserve currency of the world over the next 10 years.

"Traditionally," he explains, "empires that hold the global reserve currency are ... net foreign creditors and net lenders. The British ... pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position."

He predicts doom and gloom for the greenback, and merriment for the yuan.

For ETF investors, that means one (or rather two) things: Buy CNY or CYB. Those are the Market Vectors - Renminbi/USD ETN (NYSE Arca: CNY) and WisdomTree Dreyfus Chinese Yuan ETF (NYSE Arca: CYB), respectively. Both offer 1-for-1 exposure to the value of the Chinese currency.

Sounds like a no-brainer, right?

Well, maybe. I hear investors talking about these products all the time, and I'm not sure everyone understands them.

The Chinese currency is not a free-floating currency. Rather, it's designed to trade at or around a basket of other currencies, dominated by the U.S. dollar, euro, Japanese yen and South Korean won. The Chinese government has, for the past few years, allowed its currency to appreciate ... some ... against the dollar. But for most of the past year, it's been stuck essentially at a peg to the U.S. dollar of 6.8 yuan per dollar.

Because of that peg, an investment in CYB or CNY has been markedly un-exciting. Since debuting about one year ago, it's gone up about 4% ... about what you'd get in a CD. And it's just about a flat line over that stretch.

Investing in China's currency sounds sexy, but the bet with these products is a long-term one. If you buy, you're betting that Nouriel Roubini is right, that the renminbi is ascendant, and that eventually China will be forced to further relax trading restrictions on its currency.

If that happens ... some might saywhen  that happens ... the products could get very exciting indeed.

BTW: One note on Jim's blog regarding Claymore buying Rydex: I like the idea of someone buying Rydex, as that's an interesting franchise with some very interesting ETFs in it. The Rydex S&P 500 Equal-Weight ETF alone (NYSE Arca: RSP) may be worth the price of admission, as a lot of advisers find it a useful way to move down the cap spectrum while sticking with ultra-liquid names.

Another interesting purchase would be a company like RevenueShares, whose products have turned in some tremendous performance recently and which are gaining some credence as core holdings. That's just idle speculation, though: There's not even a rumor about that in the marketplace.

I guess we'll see.

After a week of heated discussions, the New York Times Co. (NYT) finally negotiated a deal with Boston Globe's largest union on Wednesday that could avert closing of the 137-year old newspaper.

While exact terms of the agreement were not disclosed, news sources said it involved large pay cuts, unpaid layoffs and changes to the system of lifetime job guarantees that protect about 300 people in the Boston Newspaper Guild. This was the last of the seven unions involved in negotiations with the Times management and responsible for $10 million in concessions.

Like other newspapers, the Globe has also been hurt in recent times due to slumping advertising revenue and circulation figures as an increasing number of readers prefer the Internet over printed publications. With an expected loss of $85 million this year, the Times Co. threatened to shut down the paper within a month if unions did not agree to $20 million in concessions.

With its tentative deal with the Boston Newspaper Guild, the parent company has succeeded in changing the job security contract that had been seen as an obstruction to a potential sale of New England's largest newspaper. The Times management has long been criticized for its acquisition of the Boston Globe back in 1993.

Seeking solutions for its numerous problems, the Times management has also decided to raise the prices of the daily and Sunday editions of its flagship publication by 50 cents and $1, respectively. While it still awaits significant turnaround in revenue, industry experts believe the company could soon begin charging fees for its online content. Shares of the company gained 17 cents to $6.33 at noon on the New York Stock Exchange.

The New York Times Co. (NYT) temporarily rested threats to close its Boston Globe publication after reaching cost-cutting agreements with six of the seven employees' unions for a targeted $20 million in concessions.

However, talks with the Boston Newspaper Guild, which is the largest union at the Globe, are yet to be resolved. Negotiations were cut short on Monday morning after the union's leaders walked out of a meeting.

The Guild had detailed $10 million in concessions, which were rejected before the Sunday deadline. It now seems that lifetime job guarantees for some veteran staffers that the paper wants to remove but the Guild considers non-negotiable, is the bone of contention. The talks are expected to resume later this week.

The 137-year old publication has negotiated with unions representing mailers, drivers, pressmen and machinists to avert shutdown of the mainstay of New England consumers. The Times Co., which bought the Globe for $1.1 billion in 1993, expects the paper to lose around $85 million this year amid the advertising slump.

Shares of the company were up 45 cents to $5.85 at midday on the New York Stock Exchange.

Today, the Chicago Fed released the Chicago Fed National Activity Index (CFNAI). The CFNAI is based upon the common factor approach to combining the information in 85 series, as laid out by Stock and Watson (1999). Overlaying the CFNA level against the m/m annualized growth rates of the two GDP series (in log terms) yields a suggestive picture, wherein output is continuing to decline.

Obviously there is a lot of noise in this graph; the documentation for interpreting the CFNAI [1] highlights the 3 month trailing moving average, especially relative to the -0.7 threshold. In Figure 2, I plot the 3 month moving average of the CFNAI against the 3 month annualized changes in real GDP.

Of course, these are retrospective indicators. The Conference Board's Index of Leading Indicators suggests a continued downturn through the summer [3] [4].

In my opinion, the wild card is net exports. As Macroeconomic Advisers pointed out in describing its estimate of the February GDP, more than 9.5 percentage points of the 7 percentage points of annualized m/m growth in February was accounted for by net exports -- that is the combination of reduced imports and increased exports. But reduced imports, while mechanically increasing current GDP, presages decreased output in the future. Then, the next question is whether US export growth will be sustained. Frankly, with collapsing world trade, I'm dubious.

CVC To Keep Staff At BGI?

In this column by Kathleen Pender of the San Francisco Chronicle, Barclays Global Investors' impending deal with European private equity player CVC Capital Partners is reviewed. BGI insists that the new parent won't slash current staffing levels. 

But others aren't so sure, figuring that CVC will streamline operations and unload it during the next bull market. Just a thought ... what if that turns out to be fairly soon? Private equity firms can move fast ... but later this year or even next would seem awfully fast, even for the most optimistic and aggressive speculator. 

You can read the column here.

Bogle Takes On Institutional Money Managers

Vanguard founder John Bogle is raising an interesting point these days.

As noted in this New York Times column by Gretchen Morgenson, the indexing pioneer is pointing out that much of Wall Street's excesses resulting in a real estate boom and ongoing credit crisis can be traced to institutional money managers feeding the frenzy for cheap credit and leveraged financial instruments. 

You can read the column here.

Bill Gross Raises U.S. Holdings

Bond mutual fund manager Bill Gross increased his stake in U.S. issues during March to the highest level in two years, according to this Bloomberg News story. That was through the $144 billion Pimco Total Return Fund (PTTAX).

You can read the story here.